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Economic Substance

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Economic Substance

In 2016 the EU Council committed to coordinated policy efforts in the fight against tax fraud, evasion and avoidance and adopted the "Conclusions on criteria and process leading to the establishment of the EU list of non-cooperative jurisdictions for tax purposes".

The Code of Conduct Group were then instructed by the EU Council to undertake a screening process whereby jurisdictions, including Guernsey, were assessed against three standards in respect of:

i) tax transparency,

ii) fair taxation, and

iii) compliance with anti-Base Erosion and Profit Shifting ("BEPS") measures.

No issues were raised in respect of Guernsey's standards of tax transparency and anti-BEPs compliance however, during the screening process the Code of Conduct Group expressed concern that Guernsey did not have a "legal substance requirement for entities doing business in or through the jurisdiction". The Code of Conduct Group were concerned that this "increases the risk that profits registered in a jurisdiction are not commensurate with economic activities and substantial economic presence".

These concerns were articulated in a letter to Guernsey, in November 2017, and in response Guernsey made a commitment to address these concerns by the end of December 2018.

As identical concerns were raised in Jersey and the Isle of Man, the Crown Dependencies have worked closely together to develop legislation to address the Code of Conduct Group's concerns. Representatives from the relevant industry sectors have also been involved to ensure the legislation can work in practice as well as meet the requirements of the EU.

The legislation will require companies tax resident in Guernsey, undertaking specific activities, to demonstrate that they have sufficient substance in Guernsey.

The Crown Dependencies have also prepared a document detailing key aspects of the proposed legislation and will continue to work together to produce comprehensive guidance notes.

If you have any comments on the Key Aspects document, please email with the subject line "Guidance - Economic Substance.

  • Substance Requirements

    • The legislation has been designed to address concerns that companies could be used to artificially attract profits that are not commensurate with economic activities and substantial economic presence in Guernsey.
    • With this in mind the legislation requires certain companies to demonstrate they have substance in the Island by:
      • being directed and managed;
      • conducting Core Income Generating Activities ("CIGA"); and
      • there being adequate people, premises and expenditure.
    • These substance requirements apply to the following categories of geographically mobile financial and other service activities (the "relevant activities"), identified by the OECD's Forum on Harmful Tax Practices:
      • Banking;
      • Insurance;
      • Shipping;
      • Fund Management (this does not include companies that are Collective Investment Vehicles unless they are a self-managed fund);
      • Financing & leasing;
      • Headquarters;
      • Distribution and service centres;
      • Holding Company (a pure equity holding company); and
      • Intellectual Property (for which there are specific requirements in high-risk scenarios).
    • All tax resident companies will be required to provide more information in their tax returns to ensure the above activities can be identified.
    • pdf icon Substance Questions Version 1.0 issued on 01.10.2019 [778kb]
    • Guernsey incorporated companies that have been granted exemption under paragraph 3 or 5 of Schedule 1 to the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 will also be subject to the substance requirements and therefore required to provide additional information if they carry on a relevant activity.
    • Tax returns will also be tailored to collect the information needed to monitor compliance with the substance requirements.
    • Collective investment schemes regulated by the Guernsey Financial Services Commission under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 are out of scope from these new legal substance requirements, unless they are a self-managed fund.
  • Guidance

  • Legislation

  • Consultation

    • A public consultation was launched on 6th August regarding the proposals to which there were over 200 responses with 15 industry/professional bodies providing responses. The majority of respondents acknowledged the necessity of compliance with the Code of Conduct Group's requirements and following the global anti-BEPS agenda. They also generally viewed the burden of requirements as relatively low.
    • A number of specific industry sector meetings have been held which, together with the feedback from that consultation, has informed drafting of the proposals, relevant legislation and will allow government to ensure a smooth transition for companies carrying on relevant activities.
  • Further Information


Form 706 - Company Registration Form Form 707 - Company Requesting Non Resident Status Form Form 708 - Company migration Form 709 - Company liquidation

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